Author Topic: Reader Case Study - "High" earner case study & bonus car question  (Read 11394 times)

Ceredwyn

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Longtime lurker, first time poster to the MMM forums. I am engaged and my fiancee is going to start a new job soon. I'd be interested in the MMM forums' take on our situation and what you would do in our place & why:

Current Income (both): $210k to $260k, depending on bonus

Current Debts:
House with $400k in debt @ 3.5% for 15yr. Purchased last year. A bit over $100k in equity as a down-payment, so no PMI.
No consumer debt.

Paycheck Deductions
Taxes: $50k
Witholding/Benefits: $4k

Makes Net Income Approximately $150k to $200k

Personal Spending per year:

Mortgage Interest: 14k
Real Estate Taxes: 5k
Parking at Work (downtown): 5k (ouch!)
Other Commuting Expenses: 3k for me (about 1k insurance, 2k gas & maintenance), fiancee currently has a cheap bus pass but will need a car for her new job
Utilities: 5k (TV, Internet, Phones, Electricity, Gas...generally pretty wasteful here)
Eating out: 9k (my most anti-MMM vice, eating lunch everyday and quite a few dinners out to boot)
Travel: 4k
Other discretionary (Shopping/Pets/Groceries/etc): 10k, some of this is new home furnishing but we are certainly nowhere near as tight as we could be

Total Spending: About $55k, not counting mortgage principal.

Saving:

Mortgage principal: $20k
Investment Savings: $70k (maxing retirement accounts, plus either paying extra mortgage principal or saving in brokerage account)

The saving numbers were based on last year approximately when we were at the bottom end of the income range. That comes out to saving 40-45% gross or 60-65% net, counting mortgage principal as savings.

Other Assets:
About $300k of net worth, counting home equity, retirement accounts, emergency fund, etc

My Plan: We are currently ~30yrs old and by my loose numbers if we continue to save ~$100k/yr we could probably retire within 10 years. This may get thrown off due to the fact that we will likely have a kid at some point and we would be single income for a few years (income would fall by ~$60k)...but growth in investments and potential raises could offset this to make 10yrs a reasonable baseline. I am a bit disappointed that we aren't getting this done faster, but when I'm spending $9k on eating out over the past year I guess I don't have much right to complain.

My Questions:

1) What would you do in our situation? Continue to save as is? Try to cut the fat? I toy with the idea of trimming back the most wasteful areas, but often feel like the difference between saving $90k and $100k would be small, especially since I assume that many of those expenses would be cut in retirement regardless of whether I cut them now. I am torn between the desire to save more and feeling like I'm past the point of diminishing returns.

2) My fiancee's new job is not sensible to get to by public transportation (20mins each way in a car vs. 60+ minutes by public) so she will need a car. We are considering having her use the current car that I've been driving (a 2009 Honda Civic) and either:

A) Buying a used car - My heart wants to buy something more fun/luxurious - for example, a 2008 or 2009 Lexus ES350 with high mileage would be $12k to $15k and should hopefully not have major issues since it's a Toyota.
B) Buying a new car - something boring, like another Civic. Clearly sensible, very boring.
C) Me taking public transportation - My current commute by car is 20-35mins into downtown Boston, depending on traffic. Public transportation would be 40-60mins and require a combination of bus+train, and would force me to wake up earlier. I hate mornings...my main reason for being a mustachian is that I hate waking up early and relish the idea of someday not needing to. On the other hand, the two options above have me paying ~$15k up front plus $8k/yr in parking/gas/etc.

EDIT: Just to clarify, relative to some discussion below, I am interested more in the "how did you decide how much to cut and when enough was enough?" I am quite aware of the various excesses in the budget above based on many great threads on this forum.
« Last Edit: April 29, 2014, 06:45:47 PM by Ceredwyn »

MarciaB

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #1 on: April 28, 2014, 06:06:49 PM »
Nice job on the savings rate. Your numbers are big, but you're smart enough to sock away close to two-thirds, and that's still saying something. Good on 'ya!

It sounds to me like you are kicking the tires on the ER thing, but haven't come up with an actual plan or goal. You're at a stage of testing out options in your mind, considering alternatives. This is good. And you also seem like the kind of person who does this until you're good and ready to make a decision, and then you go for it (also good).

What does your fiancee think of some of these ideas?

Gimesalot

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #2 on: April 28, 2014, 06:09:13 PM »
Since you have been on MMM for a long time, I suspect you already know what you should do to reduce expenses, but it seems like you have yet to do that, or even want to. 

Here are somethings to think about:

You state that you expect your expenses to decrease in retirement, however, I don't think that will be the case.  Yes, your mortgage will be paid off and you won't have to pay for parking.  But what makes you think that will all your new found free time, and possibly a child or two, you will all of a sudden reduce your utility costs, eating out, shopping, travel, and commuting?  I think you will be lucky if you can keep your expenses from increasing.

Using simple math, assuming you need 55k a year, at 4% withdraw, you need $1.4MM.  Here is where I get lost in your breakdown, do you have $600k in savings (net worth of $300k you stated)?  If so, you have to save approximately $700k in ten years.  This should be simple enough, as long as your income doesn't decrease significantly.  If your income decreases by $60k, you might not be able to save enough over the 10 years.

CarDude

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #3 on: April 28, 2014, 06:19:44 PM »
Skip the Lexus and get another Civic--or better yet, a Camry or Accord if you want to feel fancy. Stay away from "fun" cars. As a man, you're already much more likely to make stupid decisions when driving (I say this as a fellow man who's read the research), and the more exciting you find your car, the more likely you are to harm yourself or others while on the road.

ibleedirish

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #4 on: April 28, 2014, 06:38:06 PM »
I assume you work some stupid number of hours to pull down that salary. I do the same. I finally realized something.

I was never, ever, ever going to use my limited free time to pack my lunch. Not going to happen. Maybe in a perfect world it would, but it doesn't.


Seeing this in print makes me feel a little less guilty. Regular 60-70 hour weeks including commute time make me feel like 50 minutes NOT spent packing my lunch are 50 precious minutes I get with my daughter. Great idea on the grocery bag, week long lunch thing, I'm going to start doing that.

dragoncar

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #5 on: April 28, 2014, 06:53:37 PM »
I assume you work some stupid number of hours to pull down that salary. I do the same. I finally realized something.

I was never, ever, ever going to use my limited free time to pack my lunch. Not going to happen. Maybe in a perfect world it would, but it doesn't.


Seeing this in print makes me feel a little less guilty. Regular 60-70 hour weeks including commute time make me feel like 50 minutes NOT spent packing my lunch are 50 precious minutes I get with my daughter. Great idea on the grocery bag, week long lunch thing, I'm going to start doing that.

First of all, model case study.  You have no idea how many case studies I skip because I'm mathed out for the day and don't want to have to figure out net income, savings rate including principal repayment, etc. from raw numbers.

Are all numbers combined with the fiancée or solo?

You are in a very similar situation as me.  I might be a couple years ahead (I spend less at the moment but may buy a house soon).  I think scrimping depends on how long you want until FI.  Personally, it's not worth it to me to pack my own lunch to shave a month off my ER (I eat out but choose cheap and fast options).  I'd continue to save as is and focus on avoiding lifestyle creep as your income likely increases.  This means no to the pricey car.  That's my personal choice and you should look at expenses in terms of how long they delay FI vs their subjective value to you.

Edit: you may also want to consider whether your salary will remain this high for 10 years -- completely depends on your occupation, but in my field (law) there's a high chance my salary will decrease if I'm not made partner and shown the door.
« Last Edit: April 28, 2014, 06:59:53 PM by dragoncar »

ch12

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #6 on: April 28, 2014, 07:13:31 PM »

Makes Net Income Approximately $150k

Personal Spending per year:

Mortgage Interest: 14k - will eventually go away
Real Estate Taxes: 5k
Parking at Work (downtown): 5k (ouch!)
Other Commuting Expenses: 3k for me (about 1k insurance, 2k gas & maintenance), fiancee currently has a cheap bus pass but will need a car for her new job
Utilities: 5k (TV, Internet, Phones, Electricity, Gas...generally pretty wasteful here)
Eating out: 9k (my most anti-MMM vice, eating lunch everyday and quite a few dinners out to boot)
Travel: 4k there are other Mustachians who would be horrified by the figure, but I think that it's commensurate with a reasonable amount of travel
Other discretionary (Shopping/Pets/Groceries/etc): 10k, some of this is new home furnishing but we are certainly nowhere near as tight as we could be !!!

Total Spending: About $55k, not counting mortgage principal. If you shave 1k total off of groceries, shopping, utilities, and eating out+14k mortgage interest+5k parking costs, you'll be at a wonderful 35k/year of living expenses, as condoned by Mr. Money Mustache himself.

http://www.mrmoneymustache.com/2011/07/01/a-guest-posting-on-frugal-dad/

Quote
Instead of spending all your money, I’d advise you to live on about $15 to $25 grand of take-home pay per year, and if you pair up into a couple, the number would become $20-$35k.

Saving:

Mortgage principal: $20k
Investment Savings: $70k (maxing retirement accounts, plus either paying extra mortgage principal or saving in brokerage account)

The saving numbers were based on last year approximately when we were at the bottom end of the income range. That comes out to saving 40-45% gross or 60-65% net, counting mortgage principal as savings.

Other Assets:
About $300k of net worth, counting home equity, retirement accounts, emergency fund, etc

My Plan: We are currently ~30yrs old and by my loose numbers if we continue to save ~$100k/yr we could probably retire within 10 years. This may get thrown off due to the fact that we will likely have a kid at some point and we would be single income for a few years (income would fall by ~$60k)...but growth in investments and potential raises could offset this to make 10yrs a reasonable baseline. I am a bit disappointed that we aren't getting this done faster, but when I'm spending $9k on eating out over the past year I guess I don't have much right to complain.

Good news - it won't take you 10 years. With the conservative end of your calculations (150k after tax to accommodate for having one income in the future), expenses of 55k/year ad infinitum (prepare for your wedding to do some damage, unless some parents are chipping in), and a net worth of 300k, you're looking at less than 8 years to FI.

http://networthify.com/calculator/earlyretirement?income=150000&initialBalance=300000&expenses=55000&annualPct=5&withdrawalRate=4

Worth mentioning - your fiancee accelerates your timeline to FI. If you pull in $150k gross and she pulls in $60k gross (210k gross) when you're both working and married, then you'll pay $40,666 per year in federal taxes - less if you both are contributing sensibly to your 401k accounts. Even if she pitches in for just a few years before having (a) kid(s) and she adds food and commuting costs (why do people insist on eating?! :)), she'll accelerate your timeline.


If you had expenses of 45k/year, then you'd be able to shave 1.8 years off of your (solo) working career. To me, two years of freedom with my family would be worth cutting down on my phone bill, TV, shopping, and some of my weekday lunches (I like serpentstooth's suggestion http://www.mrmoneymustache.com/2011/06/17/get-rich-with-the-secret-food-stash/), but that's up to you.

Ceredwyn

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #7 on: April 28, 2014, 07:47:04 PM »
I appreciate all the thoughtful responses. I really love that this forum is willing to go into the weeds of some of these issues versus giving the blanket "you're saving a lot, do whatever you want" advice that most people give.

One of the things that I struggle with the most is that in my mind I always separate pre/post FI expenses. For example, as CH12 noted above I would potentially drop 19k just by not having mortgage interest and parking expenses in the post-phase. This requires no lifestyle adjustment, it's just a matter of fact. This brings expenses down to 36k, maybe more like 45k (?) with a kid (I have no idea how much to add here, TBH). 45k @ 3.5% withdrawal (as a finance guy who has done a lot of work on this issue, I can't personally stomach a 4% SWR in the current low rate environment) is about 1.3m plus a paid off house....so probably around $1.6m all in assuming some house downsizing. I think there are other things that may come down, but as a poster above mentioned others may go up so maybe I should consider that a wash. All of these numbers referenced are joint, not personal. That said, I am mentally stewing on two variations, simply summed up as:

Current Wastefulness: PV: 300k, Inflow: +90k, I 5%, N=10yrs...FV= $1.62m in yr10, $1.45m in yr9
More Mustachian Me (MMM!): PV: 300k, Inflow: +100k, I 5%, N=10yrs...FV= $1.75m in yr10, $1.56m in yr9

So the difference seems to be one year (10yrs versus 9 years), with the MMM scenario involving making a bunch of lifestyle changes versus just continuing on the same path. The number of years emotionally feels high in either case, since I've only been working for 6yrs total at this point. As a result, I am simultaneously demotivated to make changes because it seems to barely move the needle while also feeling quite guilty about my wasteful spending.

thepokercab

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #8 on: April 28, 2014, 09:27:35 PM »
So the difference seems to be one year (10yrs versus 9 years), with the MMM scenario involving making a bunch of lifestyle changes versus just continuing on the same path. The number of years emotionally feels high in either case, since I've only been working for 6yrs total at this point. As a result, I am simultaneously demotivated to make changes because it seems to barely move the needle while also feeling quite guilty about my wasteful spending.

I guess this is something that you (and your fiancee) are going to need to work out for yourself; i.e. what is important to you and what are your values.  You talk about having kids as well- what kind of example do you want to set for them?  I think many here would classify your spending as a exploding volcano of wastefulness, but if it reflects your priorities and values, so be it.  As long as you realize you have a choice in the matter, who am I to judge? Overall, I find your case study curious because, as you say, you aren't really motivated to make very many life style changes.  However, you must have known, when you posted your case study, that you were going to receive a bunch of feedback about cutting spending and changing life style.  So... yeah.   

Personally, I am about the same age as you, with a wife, and two kids, and my FI number is close to half of what yours it.  So, clearly if you were motivated to make changes you could.  With your salary and certain changes, you could probably cut your FI time in half.  But it doesn't sound like you really want to do that.

Good luck!   

plantingourpennies

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #9 on: April 29, 2014, 07:16:57 AM »
I assume you work some stupid number of hours to pull down that salary. I do the same. I finally realized something.

I was never, ever, ever going to use my limited free time to pack my lunch. Not going to happen. Maybe in a perfect world it would, but it doesn't.

So once every week or two, I go to Trader Joe's and drop $40 or so on bread, cheese, peanut butter, fruit, some frozen dinners, vegetables, nuts, etc. I put everything in the office refrigerator and then I just pull stuff from the fridge for lunch. Frankly, it's faster and easier than eating out, since I don't have to leave the office, so I can just nip over to the fridge on a conference call and pop something in the microwave.

Definitely this.  I also have a 20-ounce crock pot that I use to make simmered hot meals.  1/2 of a box of TJ's tomato soup + 2/3 cup uncooked TJ's tortellini for 2-4 hours in my little crock pot is a wonderful hot meal that doesn't have the same sort of rubberiness that comes from a microwave.  I load up the crockpot when I'm getting my morning cup of tea and it's ready whenever I want to eat lunch.  Another tasty one is 1/2 of a box of the TJ's black bean soup + 1/2 can of black beans - also from TJ's. 

Lately I've been trying to cook more and am bringing homemade soups (several servings at a time) to work, but when life gets hectic, relying on the premade shelf stable stuff is an easy and tasty alternative that feels a bit more wholesome than a frozen dinner. 

unpolloloco

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #10 on: April 29, 2014, 08:31:10 AM »
Are there any park and ride options that are available to you?  I bet you might be able to cut parking costs (and commuting stress!) without changing your commute time...

Also, if you moved to a cheaper COL area after retirement, you could probably cut 20k in costs (mortgage interest, property taxes, food, commute costs), putting your yearly spending around ~$35k without any other cuts, which would put your timeline at closer to 5 years!

MissStache

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #11 on: April 29, 2014, 08:44:53 AM »
C) Me taking public transportation - My current commute by car is 20-35mins into downtown Boston, depending on traffic. Public transportation would be 40-60mins and require a combination of bus+train, and would force me to wake up earlier. I hate mornings...my main reason for being a mustachian is that I hate waking up early and relish the idea of someday not needing to. On the other hand, the two options above have me paying ~$15k up front plus $8k/yr in parking/gas/etc.

Facepunch away.

You work in downtown Boston and you DRIVE?  That's straight up crazy.  Boston has excellent and resonably priced public transportation.  Get up 20 minutes earlier and embrace your Charlie Card!  I'm baffled that you think it is worth it to spend 20K+ just so you can drive to work!

nereo

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #12 on: April 29, 2014, 09:09:38 AM »
C) Me taking public transportation - My current commute by car is 20-35mins into downtown Boston, depending on traffic. Public transportation would be 40-60mins and require a combination of bus+train, and would force me to wake up earlier. I hate mornings...my main reason for being a mustachian is that I hate waking up early and relish the idea of someday not needing to. On the other hand, the two options above have me paying ~$15k up front plus $8k/yr in parking/gas/etc.

Facepunch away.

You work in downtown Boston and you DRIVE?  That's straight up crazy.  Boston has excellent and resonably priced public transportation.  Get up 20 minutes earlier and embrace your Charlie Card!  I'm baffled that you think it is worth it to spend 20K+ just so you can drive to work!
this +1.  To drive the point home, $20k a year invested for just 10 years yields $335,000 at 7%.  That's ~1/4 of what your FI number.  Put another way, the extra 10-20 minutes, twice a day, adds 83-166 hours per year, but saves $20k.  At a minimum you're saving $240 an hour with your Charlie Card! not to mention you can read a book on the T, somethnig I don't advise doing while driving.  Even if you're car budget winds up being closer to $10k/year, it's still causing a money hemorrhage.

La Bibliotecaria Feroz

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #13 on: April 29, 2014, 09:51:10 AM »
If you want to have a baby in the next few years and go single-income, then try living on just that one income (if that, since there is some fat in your budget) as practice. You'll build up your savings.

And make sure that you are really considering which of you will be the one to stay home. Ideally, that person won't want to "just" take care of the baby, but will also help the budget in other ways. (Sounds old-fashioned, but Stay-At Home-Parent could, for instance, pack a lunch for Paycheck Parent.) Or I have some friends who are each working half-time and sharing the duties--another option.

ShortInSeattle

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #14 on: April 29, 2014, 09:59:24 AM »
So the difference seems to be one year (10yrs versus 9 years), with the MMM scenario involving making a bunch of lifestyle changes versus just continuing on the same path. The number of years emotionally feels high in either case, since I've only been working for 6yrs total at this point. As a result, I am simultaneously demotivated to make changes because it seems to barely move the needle while also feeling quite guilty about my wasteful spending.

Don't do it for the year (although trust me - the closer you get the slower time goes!). Do it for the happiness.

We've downsized our home, relocated to a walkable city condo on the bus line, we share a 7 year old car and we haven't had cable in years.  I occasionally gawk at shiny objects (like fancy cars) but don't own them.

I am *happier* living a lower-expense, simpler life. I *love* having a foot/bus commute. I'm *tickled* that we spend less time numbing our stress in front of the TV and more time reading books, hanging with friends, and cooking healthy meals.

What feels like sacrifice ends up being awesome. Consumption is *supposed* to make our lives easier but for me it was a much more stressful way to live.

Good luck.

FrugalSpendthrift

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #15 on: April 29, 2014, 10:04:10 AM »
I assume you work some stupid number of hours to pull down that salary. I do the same. I finally realized something.

I was never, ever, ever going to use my limited free time to pack my lunch. Not going to happen. Maybe in a perfect world it would, but it doesn't.


Seeing this in print makes me feel a little less guilty. Regular 60-70 hour weeks including commute time make me feel like 50 minutes NOT spent packing my lunch are 50 precious minutes I get with my daughter. Great idea on the grocery bag, week long lunch thing, I'm going to start doing that.

50 minutes to pack your lunch?!?  It doesn't have to be some complicated ritual.  When we are cleaning up dinner, we just scoop some of the leftovers into a tupperware container and I'm good to go.  Much less time spent than actually going to Trader Joes.

marblejane

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #16 on: April 29, 2014, 10:21:51 AM »

2) My fiancee's new job is not sensible to get to by public transportation (20mins each way in a car vs. 60+ minutes by public) so she will need a car. We are considering having her use the current car that I've been driving (a 2009 Honda Civic) and either:

A) Buying a used car - My heart wants to buy something more fun/luxurious - for example, a 2008 or 2009 Lexus ES350 with high mileage would be $12k to $15k and should hopefully not have major issues since it's a Toyota.
B) Buying a new car - something boring, like another Civic. Clearly sensible, very boring.
C) Me taking public transportation - My current commute by car is 20-35mins into downtown Boston, depending on traffic. Public transportation would be 40-60mins and require a combination of bus+train, and would force me to wake up earlier. I hate mornings...my main reason for being a mustachian is that I hate waking up early and relish the idea of someday not needing to. On the other hand, the two options above have me paying ~$15k up front plus $8k/yr in parking/gas/etc.


Facepunch away.

D) Get a bike. How many miles is your commute?

dragoncar

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #17 on: April 29, 2014, 10:49:01 AM »

So once every week or two, I go to Trader Joe's and drop $40 or so on bread, cheese, peanut butter, fruit, some frozen dinners, vegetables, nuts, etc. I put everything in the office refrigerator and then I just pull stuff from the fridge for lunch. Frankly, it's faster and easier than eating out, since I don't have to leave the office, so I can just nip over to the fridge on a conference call and pop something in the microwave.

That's funny, I don't use the office fridge in part because it's always full of other people's food.  You would be my office enemy.

ibleedirish

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #18 on: April 29, 2014, 12:18:57 PM »
I assume you work some stupid number of hours to pull down that salary. I do the same. I finally realized something.

I was never, ever, ever going to use my limited free time to pack my lunch. Not going to happen. Maybe in a perfect world it would, but it doesn't.


Seeing this in print makes me feel a little less guilty. Regular 60-70 hour weeks including commute time make me feel like 50 minutes NOT spent packing my lunch are 50 precious minutes I get with my daughter. Great idea on the grocery bag, week long lunch thing, I'm going to start doing that.

50 minutes to pack your lunch?!?  It doesn't have to be some complicated ritual.  When we are cleaning up dinner, we just scoop some of the leftovers into a tupperware container and I'm good to go.  Much less time spent than actually going to Trader Joes.

I was figuring 10 mins per lunch (probably high), 5 -6 days/week

dragoncar

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #19 on: April 29, 2014, 01:10:21 PM »

So once every week or two, I go to Trader Joe's and drop $40 or so on bread, cheese, peanut butter, fruit, some frozen dinners, vegetables, nuts, etc. I put everything in the office refrigerator and then I just pull stuff from the fridge for lunch. Frankly, it's faster and easier than eating out, since I don't have to leave the office, so I can just nip over to the fridge on a conference call and pop something in the microwave.

That's funny, I don't use the office fridge in part because it's always full of other people's food.  You would be my office enemy.

My stuff doesn't take up that much space. My coworkers have plenty of room.

I believe you, but when I spend $40 at TJ's it fills an entire bag

Ceredwyn

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #20 on: April 29, 2014, 02:25:50 PM »

Don't do it for the year (although trust me - the closer you get the slower time goes!). Do it for the happiness.

We've downsized our home, relocated to a walkable city condo on the bus line, we share a 7 year old car and we haven't had cable in years.  I occasionally gawk at shiny objects (like fancy cars) but don't own them.

I am *happier* living a lower-expense, simpler life. I *love* having a foot/bus commute. I'm *tickled* that we spend less time numbing our stress in front of the TV and more time reading books, hanging with friends, and cooking healthy meals.

What feels like sacrifice ends up being awesome. Consumption is *supposed* to make our lives easier but for me it was a much more stressful way to live.

Good luck.

A couple really good points above, especially ShortinSeatle your point is very well taken. Right now I am clearly viewing it from the perspective of where sacrifices make sense and where they don't and struggling to see the value of increasing savings by a modest % (if you consider the difference between 90k and 100k modest) despite making "major" lifestyle changes. The main thing that is stopping me in terms of not commuting by car is the idea of getting up even earlier sounds absolutely dreadful.


Aside on the actual car math, doesn't really change the overall qualitative considerations but may explain why I don't consider it an absolute slam dunk change:

By my count the car will cost me about 125k over 10 yrs  (15k PV, 8k/yr PMT, I 5%, N=10). The $20k+ is in the first year counting the cost of paying cash to buy the car, so I think some of the cost savings numbers crunched by others are a bit optimistic. That said, it works out to be $100/hr for the incremental time it adds to my commute over the next 10 years, which is about my actual hourly rate. There would certainly be a noticeable flexibility loss - eg: right now I can stop and pick up things on the way home, that would be difficult otherwise. Boston proper may have a decent transit system but the system is pretty lousy once you are talking about "greater" Boston, which is where I actually live. I do think the point about "paying yourself" to sit there and read a book is a pretty good one for me to consider though. The bike is a nonstarter for me - I think Boston city drivers are incredibly inconsiderate in terms of sharing the road with bikers, and I have no desire to be at their whim until the city builds the proper infrastructure to support bikes. I may also need to consider the idea of getting a cheaper car and having it for emergencies and using it for work infrequently, while saving on the up front sum and saving on the parking.

dragoncar

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #21 on: April 29, 2014, 02:44:55 PM »

By my count the car will cost me about 125k over 10 yrs  (15k PV, 8k/yr PMT, I 5%, N=10).

This one does deserve a facepunch.  $12k/year?  If you really want a car, you can do much better.

Ceredwyn

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #22 on: April 29, 2014, 06:41:18 PM »
It seems the OP doesn't really want to change as I originally suspected and is looking for some reaffirmation that "as is" is just fine.

That's great, it's just that this site and this forum are not the places to get the props they are seeking.  What they are doing isn't bad at all relative to "real life" but its just not mustachian either.  We're going to keep making suggestions and OP will continue on as is...

No reaffirmation desired, if I wanted that I would have picked almost any other financial forum on the internet. I think maybe you are misinterpreting what the point of my post was.  I'm interested in hearing about people who faced similar trade-offs, where the changes don't have an obvious huge impact. I'm curious how others decided whether to make those extra cost cuts and where they decided the point of diminishing returns was. The point of my post wasn't to identify holes in my budget, I already knew what they were from lurking in the forums & reading many excellent similar examples, as well as tracking all of my spending via Mint for the past 3+ years. I tried to convey that in the questions I asked, but perhaps I didn't do a great job.

(Dragoncar - a large chunk of the car cost is parking expenses, not specific to what type of car I'd get. my current gas+insurance+maintenance on my civic has been about 3k/yr.)

ch12

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #23 on: April 29, 2014, 07:06:20 PM »
I like to think that the OP is operating in good faith.

It seems the OP doesn't really want to change as I originally suspected and is looking for some reaffirmation that "as is" is just fine.

No reaffirmation desired, if I wanted that I would have picked almost any other financial forum on the internet. I think maybe you are misinterpreting what the point of my post was.  I'm interested in hearing about people who faced similar trade-offs, where the changes don't have an obvious huge impact.

For me, running your numbers yields a difference between 7 years at 45k expenses and 9 at 55k expenses at the lower end of your possible income.

http://networthify.com/calculator/earlyretirement?income=150000&initialBalance=300000&expenses=55000&annualPct=5&withdrawalRate=3.5

Quote
Current Wastefulness: PV: 300k, Inflow: +90k, I 5%, N=10yrs...FV= $1.62m in yr10, $1.45m in yr9
More Mustachian Me (MMM!): PV: 300k, Inflow: +100k, I 5%, N=10yrs...FV= $1.75m in yr10, $1.56m in yr9

I'm also calculating your numbers with a 150k after tax - 55k (or 45k) expenses = 95k cash inflow/105k cash inflow per year.

And to renew my Mustachian badge after enabling someone who thinks that spending 55k is ok, kids don't cost an exorbitant amount, assuming that you aren't throwing a bunch of money at childcare.

http://retireby40.org/kid-doesnt-cost-that-much/

http://www.mrmoneymustache.com/2011/10/12/avoiding-ivy-league-preschool-syndrome/
Quote
Just like most of the other areas of modern life, child-raising is one where the cost and the benefit are actually two unrelated things.  You can spend a lot, and get no benefit at all. Or you can spend very little, and get the greatest results. The Early Retirement Extreme guy would say that these variables are actually described on two entirely separate axes.

For some of us, this means we can spend less on our parenting habit, and still become better parents at the same time! For others with a surplus of money, more expensive options certainly open up – but don’t feel they are better just because they cost more – and remember the secret cost of every decision to spend more if you are not yet retired – it takes you away from your own kids.

Abe

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #24 on: April 29, 2014, 09:25:54 PM »
Our numbers once my wife starts her new job are similar to yours (income & savings, spending is little less). Things we are doing to bring down costs:

Moving to new neighborhood closer to her work so she can walk (and my commute's a little shorter): $2k savings

Cooking 2x what we think we should for dinner and not buying lunch at work (doesn't add significant time to preparation and packing leftovers/tomorrow's lunch):
$3k (assuming 80% compliance)

Even these small changes will add up over the course of our careers and give us more buffer room and less time working.

NumberCruncher

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #25 on: April 30, 2014, 10:55:00 AM »
For tradeoffs, this site has some simple calculators to use (made by someone on the forums): http://mustachecalc.com/

Our household income is similar to yours (a bit lower), and we live in your neck of the woods. I do find it hard to care about things like not using the dryer to save on electricity costs and other things like that promoted by MMM...but we're still interested in slashing big budgets as much as possible - since it brings the bar of "financial independence" much lower. If we spent $55k/year, we'd be looking at 8 more years. As is, we've got a little over 4. :D

Focus on big expenses (ouch the cost to keep that car) and expenses that would likely remain unchanged in retirement without frugal intervention (shopping, etc). For example, we have a dog walker come by while we're at work, and while it comes out to around $2500/year, it's something we know we won't have in retirement - we did the math once and figured it would postpone FI by a few months total. It makes more sense to cut some mindless consumerism.

nereo

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #26 on: April 30, 2014, 01:44:44 PM »


A couple really good points above, especially ShortinSeatle your point is very well taken. Right now I am clearly viewing it from the perspective of where sacrifices make sense and where they don't and struggling to see the value of increasing savings by a modest % (if you consider the difference between 90k and 100k modest) despite making "major" lifestyle changes. The main thing that is stopping me in terms of not commuting by car is the idea of getting up even earlier sounds absolutely dreadful.

Aside on the actual car math, doesn't really change the overall qualitative considerations but may explain why I don't consider it an absolute slam dunk change:

By my count the car will cost me about 125k over 10 yrs  (15k PV, 8k/yr PMT, I 5%, N=10). The $20k+ is in the first year counting the cost of paying cash to buy the car, so I think some of the cost savings numbers crunched by others are a bit optimistic. That said, it works out to be $100/hr for the incremental time it adds to my commute over the next 10 years, which is about my actual hourly rate.
Ok, but... but... but...
I understand now that $20k/year might be on the high end, but your calculations assume you are keeping the car for 10 years, which i find unlikely with your commute and lifestyle.  Be honest with yourself - how often will you replace your car?  every 5 years, every 4?  And at an expense of $15k+ if you want a used version of the cars you listed above?

So even going with your 12.5k/year estimate, that's over $200k if you had invested it instead of spent it on a car (7% rate of return), and that's counting a monthly Charlie Card.  It's almost certainly higher if you buy a new car midway through your 10 years.  The $100/hr savings is how much more you would have to spend to make it a wash, but if you are saving (or paying down debt) you'll reap far larger rewards.  With driving you never anything back.  Even with spending you wind up with some new things that hopefully have value. 

If you won't give up your car that's fine - but at least understand that saving that money would very likely net a quarter million a year.  That could shave several years off your need-to-work life. 

marblejane

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #27 on: May 01, 2014, 10:44:12 PM »

Boston proper may have a decent transit system but the system is pretty lousy once you are talking about "greater" Boston, which is where I actually live. I do think the point about "paying yourself" to sit there and read a book is a pretty good one for me to consider though. The bike is a nonstarter for me - I think Boston city drivers are incredibly inconsiderate in terms of sharing the road with bikers, and I have no desire to be at their whim until the city builds the proper infrastructure to support bikes. I may also need to consider the idea of getting a cheaper car and having it for emergencies and using it for work infrequently, while saving on the up front sum and saving on the parking.

Okay. Get a bike for riding through your greater Boston neighborhood and bike to the train station that takes you directly downtown.

ZiziPB

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #28 on: May 02, 2014, 11:36:55 AM »
 
Quote
I'm interested in hearing about people who faced similar trade-offs, where the changes don't have an obvious huge impact. I'm curious how others decided whether to make those extra cost cuts and where they decided the point of diminishing returns was.

I struggle with some of the same questions sometimes.  My income is on the higher side of your range and my spending is somewhat lower than yours (single person with a child in college), so I save a lot as it is.  I could shave another $10K a year from my expenses if I instituted all the frugal measures advocated on this forum but for me it's not worth it.  So I continue to drive my expensive car, dry my clothes in the dryer and engage in some wasteful spending on cable TV, cell phones etc. ;-)  The bottom line is you need to do what feels right to you.   Cut things that don't bring you joy and that you would not miss not having, but spend the dollars on things that matter to you.  It sounds like you don't mind working a year or two longer and you are not desperate to retire as soon as humanly possible.  It sounds like the tradeoff between extra sleep and higher commuting costs is not worth it for you.   I say, keep doing what you're doing, but do reassess from time to time and re-align your spending with your priorities.

ljp555

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #29 on: May 02, 2014, 12:01:37 PM »
My income is in your range, and often I have similar feelings (where cutting the budget on little things doesn't have much impact on my ER date). I'd still encourage you to experiment with the more hard-core frugality measures. I started focusing a lot on my food budget: I've found it's easier to eat healthy when I avoid restaurants and  convenience foods. I don't feel guilty if I drop $100 on a special occasion restaurant dinner. Still I wasn't getting much pleasure from eating out at lunch during the work day, and packing leftovers for lunch doesn't feel like a burden at all now that it's a habit. Even cooking more, my grocery bill has dropped by 1/3, and it doesn't feel like a sacrifice. It feels liberating choosing NOT to spend on convenience and luxury even when you have the means to do so.

CommonCents

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #30 on: May 02, 2014, 12:22:51 PM »
Which Boston suburb do you live in?  Some are better than others for commuting.  (Would you consider moving to a better one?)  But yeah, in the Boston area I think people are CRAZY to pay $5k for parking!  That's 10% of your budget.  My husband and I commute together, so we don't save tons by buying train passes instead of paying for parking, but we MUCH prefer the stress of not having to deal with Boston traffic and being able to get work done on the commute.  (We also timed it once when my parents were in town, me riding with them and my husband taking the train, and didn't find driving saved time.)

Also keep in mind:
- Train pass may be covered by your work
- Pass (up to $130) is tax deductible

Ultimately, I'd suggest not trying to go to a bare bones budget or you'll likely fall off your financial 'diet' but instead trying to trim obvious fat.  Try to bring leftovers for lunch just one day a week.  Bring in cans of coke so you don't buy coke for lunch.  But really reconsider parking in the city.  The only people I knew that did that were partners in law firms.

Ceredwyn

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #31 on: May 02, 2014, 12:31:17 PM »
OP here. All very good points above. One thing that we are evaluating is holding off on any car purchase decision and experimenting with a mix of carpools, public transportation, etc. This may allow us to stick with the existing Civic and not get a 2nd car (avoiding a new expense) while reducing or entirely eliminating the 5k parking expense (as noted above, almost 10% of our current budget). I am a bit hesitant to add to the time of the commute, especially in the morning, but perhaps not dealing with the aggravation of city traffic will make up for that.

Wile E. Coyote

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #32 on: May 02, 2014, 12:36:27 PM »
It seems the OP doesn't really want to change as I originally suspected and is looking for some reaffirmation that "as is" is just fine.

That's great, it's just that this site and this forum are not the places to get the props they are seeking.  What they are doing isn't bad at all relative to "real life" but its just not mustachian either.  We're going to keep making suggestions and OP will continue on as is...

No reaffirmation desired, if I wanted that I would have picked almost any other financial forum on the internet. I think maybe you are misinterpreting what the point of my post was.  I'm interested in hearing about people who faced similar trade-offs, where the changes don't have an obvious huge impact. I'm curious how others decided whether to make those extra cost cuts and where they decided the point of diminishing returns was. The point of my post wasn't to identify holes in my budget, I already knew what they were from lurking in the forums & reading many excellent similar examples, as well as tracking all of my spending via Mint for the past 3+ years. I tried to convey that in the questions I asked, but perhaps I didn't do a great job.

(Dragoncar - a large chunk of the car cost is parking expenses, not specific to what type of car I'd get. my current gas+insurance+maintenance on my civic has been about 3k/yr.)

I think others have already mentioned this, but it really comes down to how much your time is worth to you.  For me, I have a young daughter and so the time that I have that is away from work to spend with her is priceless.  So yes, I do some anti-mustachian things like pay someone to cut my grass because I don't want to spend the time to do that.  When I retire, I'll gladly do that on my own as the ratio of my free time that it will take will decrease dramatically at that point.  Only you can decide whether $125K over 10 years is worth the extra sleep time.  To me, it is not, but that's your decision.  Could you move, or are you that attached to your town?  I live in the Boston area and take the train.  I have two cars, both with 100K+ miles on them and I hope that they last another 200K miles.  If they don't I will gladly buy an old honda civic as cheaply as possible and drive that as it is not worth it to me to drive something nice (and I am a car guy that absolutely drools over all of the amazing cars I see every day).  Even if this one thing doesn't make a big difference in your view, if you make your decision based on that alone, then you will miss out on the cumulative impact that making a lot of smaller changes can have. 

CommonCents

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #33 on: May 02, 2014, 12:44:08 PM »
I'll add that we have a Honda Civic ourselves ('04 in our case, 100k miles) as our only car so I know what it's like to drive it around Boston.  I think it's doable until you have kids, then it's more annoying to get a kid in a carseat in and out of a 2 door car.  Re time to commute, we're also not morning people.  We're up and out of the house in under 30 minutes, and then we relax on the train.  Think of it this way, it gives us an extra 20 minutes to wake up before switching for the subway.

dragoncar

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #34 on: May 02, 2014, 01:27:55 PM »
I'll add that we have a Honda Civic ourselves ('04 in our case, 100k miles) as our only car so I know what it's like to drive it around Boston.  I think it's doable until you have kids, then it's more annoying to get a kid in a carseat in and out of a 2 door car.  Re time to commute, we're also not morning people.  We're up and out of the house in under 30 minutes, and then we relax on the train.  Think of it this way, it gives us an extra 20 minutes to wake up before switching for the subway.

They make 4 door civics...

Cheddar Stacker

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #35 on: May 02, 2014, 01:41:39 PM »
I'm curious how others decided whether to make those extra cost cuts and where they decided the point of diminishing returns was.

Just as a frame of reference for you, I'm 35, a high earner, have a wife that's basically a SAHM, and 2 young kids. I cut in every single way I can while keeping my sanity because it's tougher with kids, and with a wife (husband/partner/fiancé) who isn't 100% on board with living frugally.

Carpool and park the civic at the cheaper of your 2 jobs. That's your biggest bang for your buck while still keeping all your other luxuries. You might actually be saving money. If it just isn't worth it after a few months, try something else.

I would make as many realistic, non-detrimental to your happiness cuts as you can right now and once you have a child go back to buying a few luxuries. You are a high earner, you have no kids, and things are going well. Put yourself in the best position you can during this phase, because it may not last (sorry to rain on the parade).

Kids don't have to be expensive, but when faced with the decision to spend $2,500 on a medical procedure to improve your child's health/wellbeing, you really aren't going to say no to that unless you simply can't come up with the money. Your job might not last forever. Your fiancé might decide she doesn't want to work post baby. There are so many variables that you should get while the getting is good.

Good job so far, you're in a good position. Now get yourself into a great position. Quickly.

CommonCents

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #36 on: May 02, 2014, 03:01:11 PM »
I'll add that we have a Honda Civic ourselves ('04 in our case, 100k miles) as our only car so I know what it's like to drive it around Boston.  I think it's doable until you have kids, then it's more annoying to get a kid in a carseat in and out of a 2 door car.  Re time to commute, we're also not morning people.  We're up and out of the house in under 30 minutes, and then we relax on the train.  Think of it this way, it gives us an extra 20 minutes to wake up before switching for the subway.

They make 4 door civics...

Yes, and at the point we have kids, we might consider replacing our car.  Until now though, our 2-door is just fine (and I posit, fine for the OP too, if that's what they have).

lbdance

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #37 on: May 02, 2014, 03:59:52 PM »
I can understand that when you look at the big picture, some small changes may not appear to make much of a difference in the long run.
My suggestion would be to try some of the changes on a 'short term' basis as others have suggested and see how they work for you.
E.g. Try and take lunches for a week, then extend that to a month. See how easily possible it is for you, and what your pitfalls are. Is it that on Fridays a few people all go out for lunch together,, and there is a social aspect that you want to join in. You have now opened yourself to trying something new, rather than just considering if it will be worth it. Try using public transport 1 day per week, then increase to two days. There may be a balance as you have said picking stuff up on the way home is not as easy. Your balance may be using it 4 days per week, and planning all your errands for on the way home 1 day.

One thing that hasn't been asked is how much you enjoy your job. Do you think that you can continue to do it, with no decrease in income, for the next 10 years?
Personally I would be going as hard as possible for a couple of years (whilst your wife is working also) to make as much savings as possible in case your employment situation changed.

happy

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #38 on: May 02, 2014, 07:08:30 PM »
Firstly congratulations on living on $55k when you earn so much more. That shows a much greater than average level of discipline. Your post though shows you are still not yet immune to the common affliction of consumerism " its only  a few dollars, I deserve it"  and tiny details exaggeration syndrome.  For example as others have said it takes 10mins to make lunch not 50.  And the car thing with the fun Lexus.

Being a high income earner and a not very good mustachian, I am familiar with all these things. I still do them to some extent.  But I'm getting better, year by year. What has helped me most is deeper level change.  Whether its 9 or 10 years, and whether I buy this car or that, is relatively superficial, and it is personal choice about how hard and how fast. But this is still about spending and you will need to be happy to live off whatever you base your retirement expenses to be. 

More profound is the concept that you can be happy whilst spending little money. I am concentrating on learning this skill, then there is no need for a "fun Lexus".  I feel like I am slowly curating my life and shedding unwanted bits. I spent some time thinking about my life like zero based budgeting: starting as the bottom and building up, rather than starting at the top and cutting back.  I need sufficient healthy food to fuel my body, I need some sunshine every day, I need some protection from the elements etc etc. 


bobmarley9993

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #39 on: May 02, 2014, 09:01:07 PM »
I think it depends on how dependable your income stream is.  Is it realistic that in 5 or 10 years you will have similar income and do all in your profession make that type of money?   

I am personally on the low end of your range but even then my income is quite high compared to others in my field.  As such I tend to treat my income as "bonus" money even though it is primarily salary.  I work my budget off of the lower income levels in my field and save the extra.   I don't know if this any way applies to you so I don't think I'm going to go into any more detail but I'm sure yo get the drift.

I would definitely cut down on eating out expenses (if it's not a job requirement) and avoid the new car.   What I used to do when I was eating out a lot was to bring snack food as a supplement.  Fruit, veggies, yogurt, snack bars, they are cheap and you just grab them on your way out.  I found that cut my eating out expenses by about 40%.   I just don't think the car is a good use of money, I know it's personal but I still can't see many situations where it's smart.  Definitely have an old one but if you don't need the savings why not spend it on something more interesting?  Go for an exotic vacation or whatever floats your boat.   From personal experience, when you look back you will remember the vacation more than the sweet ride.  Just my opinion of course.
« Last Edit: May 02, 2014, 09:02:54 PM by bobmarley9993 »

totoro

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Re: Reader Case Study - "High" earner case study & bonus car question
« Reply #40 on: May 02, 2014, 10:30:15 PM »

EDIT: Just to clarify, relative to some discussion below, I am interested more in the "how did you decide how much to cut and when enough was enough?" I am quite aware of the various excesses in the budget above based on many great threads on this forum.

I decided to cut out costs based on whether the things I purchased were worth it to me given the bigger picture.  Sometimes they were. 

Commuting was never worth it to me because it cost me time and money and I could earn the same salary working from home most of the time.  Can you?  Most skilled professionals have options.

Living far from work was never worth it for me when I was working outside the home.  My limit was 15 minutes on the bus.  Your fiancé's new commute seems kind of onerous - are there no closer options on a direct public transit route?

If you rented out your new house would the rent cover the costs?  Could you rent a place close to your or your fiancé's work until you had a child?  Add up all the commute costs and the numbers for renting out and see if it makes sense - if this is something you would consider.  I would run the numbers because it sounds like at least $12,000 a year if you gross up for your taxes that you are spending on a car/parking and you are planning on adding a second one.

Eating out is sometimes worth it for me.  Most of the time it is not.  I expect you probably could make stuff on the weekends to take for lunch.  Soup is easy, as are pre-made salads in a jar - loads of posts on this.  If not, it would be worth it to buy groceries as mentioned.

Your discretionary spending is quite high, as you know.  Without more details it is hard to know what might be an easy win for you.  The question to ask yourself is whether these things are worth it to you.   

Your home is a big monthly expense of about $4500 including taxes, interest and principal and a few repairs.  It would be faster for you to reach FI if you had a multi-family subsidizing your costs and allowing you to invest some of this money elsewhere and permitting you to decrease your needs for retirement when it is paid off and providing a monthly income.   That was a choice that was worth it for us, might not be for you.

In addition, your property taxes are double what they are where we live for the same value property.  In retirement are you going to stay where you are?

As far as when cutting is enough, if it significantly impacts your present quality of life in ways you are not prepared to do without given your income and long-term goals this might be your line. 
« Last Edit: May 03, 2014, 08:34:51 AM by totoro »